Iraqi Style Life Insurance

The New York Times has a fascinating article on the emergence of Terrorism-related life insurance in Iraq. The Iraq Insurance Company is providing a terrorism insurance policy.

It looked like an ordinary life insurance policy, but with a one-page rider adding coverage for "the following dangers: 1) explosions caused by weapons of war and car bombs; 2) assassinations; 3) terrorist attacks."

The idea of a standardized, terrorism life insurance policy appears to be unprecedented, said Robert Hartwig, the chief economist of the Insurance Information Institute in New York.

The Iraq Insurance Company, a state-owned group, has sold about 200 individual terrorism policies in the last year, and is now negotiating with several government ministries and private companies for group policies that would cover thousands of employees.

An employee of the company stated that :

[T]he terrorism policy makes no distinctions between who fires the shots or detonates the bombs. He would be perfectly willing to insure an insurgent, though he has not done so to his knowledge.

For a 23-year-old male it cost 125,000 dinars, about $90. The payout, if he dies, is five million dinars, around $3,500. Based on these numbers and making the heroic assumption that the premium is equal to the expected loss (usually Premium = PV[E(L)] + PV[E(Expenses)]+Taxes+Cost of Capital (aka Profit Loading)), the Iraq Insurance Company projects a 2.5% probability of death within the policy period, which is quite high, but given the situation who knows.

As always there was an interesting quote by Robert Hunter, the director of insurance for the Consumer Federation of America, an association of consumer rights groups. 

In an American context, it's very overpriced. In America, you could probably get $100,000 worth of life insurance coverage for maybe $125 to $150, especially a healthy 23-year-old.

Now I am not certain if the reporter took Mr. Hunter's quote out of context, but if not ?  Well, I will let you decide for yourself.